Are Cellphone Exclusivity Deals Bad For Consumers?

By cwaltersJune 16, 2009

Yesterday, four U.S. Senators sent a letter to FCC acting chairman Michael Copps requesting an investigation into whether exclusivity deals between handset makers and national carriers are ultimately good for consumers, and they plan to hold a hearing on the issue on Wednesday, June 16th. They join a growing number of people and organizations, including the Rural Cellular Association (RCA), who say exclusivity deals benefit no one but the carriers and manufacturers.

The primary concern for members of the RCA, which encompasses over 80 rural cellular carriers, is that by tying up new handset models with specific carriers the national companies are shutting out smaller carriers from competing. For consumers, the charge is that aside from generally limiting choice, exclusivity deals help create a digital divide by preventing customers in certain areas from access to the latest phone technologies.

The Consumers Union, the New America Foundation, and the Electronic Frontier Foundation, as well as software provider Mozilla and small wireless carriers MetroPCS (PCS) and Leap Wireless International (LEAP), are lining up in opposition not only to the Apple-AT&T partnership, but to all manner of arrangements whereby mobile phones are tethered exclusively to a single wireless service provider.

But as CNET points out, the problem with breaking up the exclusivity party is that both manufacturers and carriers make a lot of money with the current arrangement, so they have zero incentive to change it.

For consumers, obviously if you could buy an LG Voyager, Palm Pre, or Apple iPhone and use it on any network you like, you’d have far more choice. The only consumers who can do that now are those with the technical savvy and contrarian DIY nature (not to mention the money to afford an unsubsidized phone) to go the jailbreak route, which isn’t an ideal solution.

Comments

Edit Your Comment

At Apple’s WWDC last week you could hear the “booooo’s” in the audience during the keynote when the new features were announced along with all the non-AT&T carriers who were going to support them. I sense Apple is deliberately stoking the fires in anticipation of some intense strong arming when AT&T exclusivity deal with the iPhone expires next year.

But even once that deal expires and (only if) AT&T doesn’t renew it, what additional carriers have the network (GSM?) to support the iPhone? I can’t remember if it’s either T-Mobile, Verizon or both. One thing it isn’t is Sprint (I’m one of the super rare customers who is, by-and-large, satisfied with the current retention deals I have with them). I’d hate to have to give up Sprint solely to get a Jesus phone.

T-Mobile is the only other GSM network, they can run the Iphone now without any modification on Apple’s part. However T-Mobile’s network in general, and especially their data network, is heavily lacking. Anyone angry at ATT’s service would be even more angry over at T-Mobile. Apple would have to produce CDMA versions for Verizon and Sprint.

@MalcoveMagnesia: TMobile is the only other major US GSM carrier. For Verizon and Sprint, Apple would have to make a CDMA iphone.

The only silver lining is that all carriers seem to be standardizing on LTE for their 4G network, which is sim-based and will be compatible across carriers. Whether Apple still makes their handsets exclusive is another story…

@MalcoveMagnesia: Yup. I, too, maintain my account with Sprint. I’d get an iPhone if Sprint carried it. I’m simply unwilling to part with the deal I have with them.

I’m not sure why Apple wanted to lock itself into AT&T and don’t understand CNET’s assessment that manufacturers win here. Surely Apple would be much more victorious if they considered all carriers and not just one. The only winner IMO right now is AT&T.

You need to look beyond the US for the answer to that question…. the majority of the the rest of the world runs GSM, not CDMA. So, by producing a GSM phone, they take care of a much larger market globally. In the US, I believe AT&T is still the larger carrier by subscriber, so it makes sense what Apple did.

This is the same reason you typically see more “cool” (I know… subjective) handsets come out on AT&T/T-Mobile in general – GSM is the world standard.

@MalcoveMagnesia: Verizon is due to launch LTE late this year or early next year. If that holds we might see an LTE iPhone next June/July as the major refresh. Thats about when the AT&T exclusivity deal ends as well so we might see a Steve Jobs/Alan Ivan Seidenberg show at next years WWDC.

Widespread LTE deployment won’t happen until 2011 so with that there might also be an interim CDMA iPhone for Verizon/Sprint.

@FoxBearDog: I just kicked AT&T/Cingular yesterday in favor of T-mobile for a better pre-paid plan (and a phone). The deal I got with T-mobile is actually posted on today’s deals.

Screw the iPhone and all the other handhelds and contract plans. I have and will continue to pay under $130/year for cell service via pre-paid plans + $30/year for Skype. That equates to about 2 months of an iPhone. I realize this doesn’t work for everyone but I think a large number of people would be happier with such a setup. I think some pre-paid plans now also include internet for a small fee for the days it is used (if I remember right, $0.35 per day used).

I don’t really get this. There are plenty of cell phones out there though. No one is forcing you to buy an iphone and it’s ridiculous to argue that an iphone is the only option when there are so many other similar devices. So how does this really become an issue of competition? They made a better mousetrap so they should be able to profit from it. It’s not like there aren’t other equally good ways to kill mice out there.

Frankly, I don’t understand these tech-chasing, early adapters anyway. I just assume they have way too much money or not enough sense. They’re obviously willing to pay a premium for their status symbol so just let them have it.

@henwy: I guess the problem with your statement is that you imply all iPhone users or Pre users (by nature of only being able to use phones on one network without jailbreaking them) are early adopters (though in the case of the Pre, they would be – but it could be a calculated and informed decision). I waited two years to get an iPhone, and I won’t switch for another year and a half or two years. I’m hardly an early adopter. But I don’t mind only being able to use AT&T because the cost made sense. I didn’t want a Blackberry, regardless of the network.

But I agree, there are plenty of cell phones and no one is forcing one person to do anything at all. Even in rural areas, there is usually some degree of choice. Even if a rural area only has two providers, they usually have dozens of phones to choose from. There’s no reason for these organizations to get up in arms because “it’s not fair” to other people. I really just don’t get why it’s a big deal.

@pecan 3.14159265: “Even in rural areas, there is usually some degree of choice. Even if a rural area only has two providers,”

We have one. One provider. All the major national networks CLAIM to provide rural coverage around me on their maps, but only Verizon actually does provide any quality of signal once you’re off the interstate.

(And even with that, we still drive into dead zones on rural highways.)

As I say below, I don’t have a particular problem with Verizon. But I do have a problem with being REQUIRED to use Verizon and with existing in a competition-free environment with spotty coverage and no incentive to improve. And ZERO fancy data coverage, with no incentive to provide it. Competition, especially from smaller local carriers, would go a long way towards improving my cell options and the quality of my cell service.

(I do live in a city, where coverage is fine, but my husband drives out to every rural county in the state to go to tiny rural courthouses in counties with 4,000 people … in the dead of winter in the middle of a snowstorm when RELIABLE CELL COVERAGE WOULD BE REALLY IMPORTANT. Especially since he’s from Florida and I still don’t have that much faith in his winter-driving-savvy.)

@henwy: I agree for the most part. I would love an Iphone, and if it was available with my current carrier I would have got it in a heartbeat. However, AT&T doesn’t have much of a presence in my area so I got a Blackberry Curve. Still a great phone and there are dozens of great phones out there. You don’t need a federal investigation just because small town people can’t get an Iphone.

@henwy:
I dunno, Verizon has a pretty crappy selection of phones compared to other carriers. They also tend to “cripple” their phones; a lot of phones that have wifi or gps on ATT or Sprint won’t on Verizon.

I’m on verizon right now. I ended up tryuing 4 different cell companies until settling on them because they’re the only ones with a signal that penetrates into my house. It’s a bit of a dead zone here. So far, I haven’t had any complaints over the phones either. It’s just about time to upgrade and they’re offering me an Alias for notta.

@henwy: I don’t really care if a small carrier has access to the iPhone, but if a small carrier doesn’t have access to ANY phones, because they’re ALL tied to major carriers (which is pretty much the case), then I can’t use a small carrier, can I? And I remain locked into major national carriers that can’t be bothered to provide service where I need it (i.e., in rural areas) because it isn’t profitable for them, but who are successfully blocking small carriers from competing in that market and filling that hole for those of us who need service.

Y’all need to step outside major urban areas now and then and realize it’s not farmers chasing iPhones; it’s rural citizens who’d like SOME ACTUAL CELL SERVICE. Your cell options and the quality of service are very, very different outside a major metro area.

@henwy: If locking phones to carriers were illegal then everyone could enjoy a full range of phones on any compatible network, and manufacturers would have eventually made GSM/CDMA hybrids to answer to consumer demand.

The actual network connection on a cellphone is offloaded to a separate IC anyway, you wouldn’t have to redesign from the ground up.

I got suckered into a two-year contract with some fancy (and expensive) gadget phone from Nokia that I barely use, exclusive to O2. Sure, they’ll have made plenty money out of me by the time it expires in ~6months, but it won’t be happening again. Exclusivity can bite me. A phone’s a phone.

@Dabby: This is one case where capitalism has failed. The US has how many different cell standards? GSM, TDMA, CDMA, Digital Cellular, et al? This was a couple of years back when I looked it up.

The thing the f*ckin’ FCC should have done is chosen a single f*cking standard. Then these idiots would be at each other’s throats even more. They probably should have gone one step further requiring something similar to SIM chips and all phones working on all networks. Sure Verizon can turn features on or off, same with Sprint, but the phone itself would not be “tied” to any carrier.

If exclusive handsets and their accompanying app stores are the new walled gardens of the mobile industry, this move could force more openness. Should be interesting to see if this effort dies a quick death or whether the FCC might actually pay attention to this issue.

@Radi0logy: My family hasn’t had Sprint since the early 90s, so could you explain this? Why does Sprint require you to upgrade your plan? It seems to me that I can use whatever plan I want, and they shouldn’t require me to do anything.

@pecan 3.14159265: You are correct, they shouldn’t. If the plan were worth it then people would just upgrade. They force you to upgrade if you want the snazzy new phone because they know you wouldn’t otherwise.

@pecan 3.14159265: Well, not for all phones, or even most of them. But their “data dependent” phones, like the Instinct, require upgrading to a “Simply everything” plan with unlimited data included (regardless of if you already have unlimited data included in your older plan, which I do). I got plenty of run-around for why I couldn’t do it. So I finally got a new phone that is sort of similar, the HTC Touch Platinum (and I hate it).

But sprint still has me hooked, plans will have to evolve for many years before one beats the deal I have had for the last three years…

I can see this making sense in the next generation of cellular technology – LTE. From what I can remember, both carrier types (CDMA(Vz,Sprint) and GSM(Att,Tmo) ) will use the same tech. This should allow all 4G phones to work on all networks.

I would be all for this because i gave up my Verizon coverage for ATT to get an iphone 3G. I used to have cell access during my entire subway commute, now it’s just for the last half. I have no regrets, but it is something i noticed.

@artieb: I stopped getting cell coverage inside the subway tunnel too, but that should be rectified by the end of the year cause AT&t is adding towers to the metro line. I knew Verizon was the only game down in the tunnels, and I was okay with losing that…especially cause half my phone calls were full of static down there or wouldn’t connect anyway.

When the Iphone was announced a few years ago, I found it a little odd that Apple would temper the revolutionary nature of the device by tethering it exclusively to Cingular/AT&T. I was a little underwhelmed.

It’s like inventing a flying car, but then designing it to only run on Sunoco gasoline, for the sake of getting a nice pay day from Sunoco.

I think handset exclusivity is less than a problem than carriers wounding the handset for their own fun and profit. Verizon has a dark history of turning off Bluetooth and USB file transfer so you had to send your photos and videos through their network. You paid for the function in the phone, yet Verizon sets up toll booths every step of the way.

I also think they need to concentrate on the pricing of cellular service. $.20 for a text message??? How about AT&T’s GoPhone service that’s $.25 per minute for all minutes, yet if you pay $89 a month for a voice service and go over your minutes, they charge you $.40 per minute. And I think in this day and age, rounding up to the next minute is a ridiculously abusive billing practice.

While I’m railing about Verizon, how about Verizon’s practice of charging you $1.99 per megabyte for data when you accidentally hit their “Get It Now” or media buttons, conveniently placed on either side of the main menu button so you’re likely to use a paltry 32 kb of data by accidentally hitting these menu options and racking up nearly $2 in extra profit for Verizon.

Handset exclusivity deals are not the problem. Exclusivity is a marketing tool and I have little problem with it. Let’s work on the patently abusive and obvious operating practices.

for those with “dumb” phones (like me) that don’t wished to ravaged by the “$2 dollar Get It Now!” button it’s easy call 611 and have them turn off data. that way you can’t accidentally incur the charges.

and another verizon story for the masses. my wife bought the centro last year, but didnt want the data plan (i know, i know, her work uses mostly palm software ((i know, i know)) and she was sick of having a PDA and a phone) we started getting data charges for it. when i called and finally got through to a supervisor he said they couldn’t turn off data on the centro without disabling the MMS, and that the centro routinely connects “on its own” he said it was a known problem with the palm’s and that they would credit our account 7 dollars a month to cover any overages. this is the only “smartphone” verizon will sell without a data plan and if there are “known” issues why is this still not reflected on their site when i checked? oh wait, it’s verizon nickel and diming their customers to death. @zentec:

Not only are these exclusivity deals bad for the customers, so is the practice of charging for cell phone service. Customers would be far better off if these cell phone carriers offered their services for free.

Yeah, RCA! We’re pretty much stuck with Verizon because my husband drives all over rural Illinois to rural county courthouses, and Verizon is basically the only carrier that provides coverage off the highways in the more rural downstate areas. If we’re willing to stay in the city, we can choose from the major carriers, but if we want to leave the city and get off the interstate, it’s pretty much Verizon.

I don’t have particular complaints about Verizon at this time, but I’d really like some competition, particularly because I’d like to see some lower rates. Or the opportunity to support a local carrier.

And if we used data services (beyond texting, of course), we’d be SOL, because we get none of that fancy city 3G coverage once we step outside city boundaries. And none of the major carriers are going to bother to provide it. But a small carrier might!

I have less of an issue with exclusivity agreements, and more with the practice of locking the devices down (whether simlock or removing functions like verizon loves to do and has been sued over). The carrier subsidizes the phone, so be it.. but I really wish we could get back to basics.. handset makers sell phones, and wireless carriers sell service. Keep them separate (continue to allow subsidized phones if the user wants to tie himself to a provider, but let vendors sell their wares directly to the public).

The downside is that phone costs go up.. essentially take the price of any phone you see advertised right now by a carrier… and add $200 to $500 on top of that, even dumb phones unlocked are ridiculously expensive.

However.. my biggest pet peeve.. let me unlock the damn phone when my contract is up (I know this is slightly off topic for this thread)… instead of leaving me with a useless brick should I change providers.

Oh, and those complaining about the iphone and ATT agreement, yes, its in place, and yes you can get around it and use the iphone on tmobile, however you stuck at 2.5G (edge) network as tmobiles 3g (however limited it is) does not run over the std frequency band the rest of the world uses for HSPA data networks, so 3g on the iphone does not work on tmobile.

@henwy: You presume to know the reason every iPhone user purchased it.

Besides that, imagine if this were the case with your landline. You can only buy certain phones with a certain company. Now, imagine you could use cells like landline: purchase any phne you like, THEN choose a carrier. Seems a lot better for competiton all around, which is better for consumers. This is one case where the market is throttling competition, and a little regulation could help. To me, it’s a case of consumers wanting something, being willing to pay for it (phone a on carrier b), but being denied it by anticompetitive practices.

The way the cell industry works in this country (not jut the aspect in this article) is why I only have a cheapo prepay. If they’re going to be unreasonable (which I believe they are) I’m not buying. Maybe if more people acted like this we wouldn’t need regulation in the first place.

@takes_so_little: Eyebrows Magee got it right, there are so many rural areas that have shit cell phone service and the carriers don’t give a rats ass about improving it because they consider the small group of people living there as “expendable” compared to the other big metro markets they make money in.

Exclusivity of ANY kind is anti-competitive and hurts consumers. It’s not rocket science: AT&T can charge whatever they want for iPhone service, because *nobody can compete with them*. And whenever a company can charge whatever it wants, nobody seriously thinks it chooses to charge a moderate-but-reasonable price, do they? Because that would be blindingly stupid, and stupidly blind.

America pioneered the competition-helps-consumers-and-drives-innovation thinking with the early anti-trust legislation and all the hoopla about the “free market”.

But boy, it didn’t take many CEOs to buy many Congresscritters before we forgot right quick, did it?

@Mary Marsala with Fries: Though my defense has always been that though the data plan and text messaging plan and such are expensive, they’re the norm. Verizon, Sprint and T-Mobile, they all charge for data and text. All of them do. Sprint may be a touch cheaper, but if it’s really true what other users have said (see upthread) about Sprint requiring you to upgrade your plan if you upgrade your phone – I don’t want any part of that.

@DefineStatutory: Really? I can buy another phone that does the same stuff? Which one gives me the Apple Apps store, the main selling point of the iPhone?

Right, that’s what I thought.

(For the record, I use a third-party phone myself – but I don’t delude myself into thinking it does the same as the iPhone or vice-versa. Each has its own software packages with different capabilities.)

While I agree that exclusivity isn’t the perfect situation for consumers, shouldn’t congress have better things to do than hold meetings to figure out why verizon gets some phones, and ATT gets other phones?

There’s nothing illegal or fraudulent about the practice, and yes, it sucks a little for consumers, but this seems like a big waste of time to me.

If enough consumers voted with their wallets and didn’t jump to ATT to have an Iphone, it wouldn’t be exclusive. But, it doesn’t seem like that’s much of an issue.

Thats a completely different issue. This particular thread is about exclusivity agreements (iphone, pre, or any other hot device).

What you are referring to is phone subsidization. ATT’s policy about selling unsubbed phones aside, when you paid that $299 for the 3G, you got a subsidy from ATT to the tune of $200 (the ETF you would pay if you cancelled). Many unlocked phones range in prices from $200 to $500 more then the subsidized price you see listed, that includes elcheapo free phones you get. When you signed that agreement for 2 years, that is so the carrier can recoup the cost of giving you a discounted phone.

Just because a new device came out while a user is still under contract, does not give them a right to upgrade at the subsidized price. People seem to think they are entitled to the cheap phone, they are not.

Keeping a single phone with a single carrier necessarily keeps the price higher than it should be because there is no competition. That’s good if you are the cell phone make and the cell phone company, but bad if you are a customer. I would buy an iPhone in a minute if it wasn’t on AT&T because AT&T sucks ass, and I’m not going to spend $600 on a cell phone otherwise. I suppose they don’t want the phone to become like the Razr which became so common it became worthless. Limit supply, and you will keep people clamoring for your product.

@morlo: Although your tone is mocking, I’m going to have to agree with your statement. Everyone of those things should be above “gadget sales” on the list of things our government should be addressing. ;)

Yeah this issue pisses off people I have worked with who are usually from other countries where this type of monopolization doesn’t happen. It would love to be able to use the phone of my choice with the service company of my choice!

The article states that there is little incentive for carriers AND manufacturers to drop exclusivity b/c they make so much money. But I think its just the carriers.

Wouldn’t Palm sell more Pre’s if they weren’t exclusive to Sprint? Wouldn’t Apple have sold just as many iphones (if not more) if consumers had a choice of two or three carriers?

Phone subsidization is part of the issue. I can take an IMEI/SIM unlocked phone I bought in Taiwan and AT&T will activate it on the network as long as its technologically compatible, but I will have paid a small fortune for it.

For those of you who don’t see anything wrong with the system as it is now, this about this:

You want access to the internet. You look at different internet service providers, and they will give you a free or very cheap computer when you sign a 2-year contract for internet service. However, you cannot buy your own computer to connect to the internet and use all of the features you have paid for with your service, and the one that they sell you to use on their network is stripped of many of its factory-designed programs and abilities (which they can take full advantage of in Europe, where the system is completely different) and you cannot take that computer and use it with a different ISP.

While this analogy is written with CDMA networks (like Verizon in mind) it works well enough for SIM-based networks too. THIS IS WHY THINGS NEED TO CHANGE.